Prior to arriving in Canada, I’d already read up on the importance of a credit score, which can’t be built without a credit card.
I don’t really care for credit cards but they are a necessary evil, and if you’re a good and disciplined money manager, you can use credit cards to your advantage.
This article will cover why you need good credit in Canada, tips for building credit fast as a newcomer to Canada and how to check your credit score after a few months.
Why Do You Need a Credit Score?
In Canada, credit history is required for loan applications, mortgages, car purchases, insurance and renting apartments (not in all cases). It may also be required for some other situations.
It is very difficult to get most of these things done without a credit score so you should start building your credit history ASAP once you arrive in Canada.
If you have credit from your previous country, credit history isn’t really transferrable but it may help in some cases.
Additionally, if you moved from a country with no credit score at all, as I did, you’re fresh out of luck.
A credit score is used to determine how much of a credit risk you are. So how can a newcomer to Canada build credit quickly?
How Long Does It Take to Build Credit in Canada?
I’d already researched a few banks before arrival and decided on CIBC so I booked an appointment within a few days and went in to open a checking account.
The rep required my SIN and original passport to open the account. During the process, he opened a TFSA (Tax-Free Savings Account) as well.
He also applied for a no annual fee, unsecured credit card with a good limit although if it was a low limit, I would have been fine anyway.
After the credit card arrived a few weeks later, I started putting the following expenses on it:-
- Mobile plan
- Online shopping
- Home furnishing
At the end of every month, CIBC sent me a bill and I paid off whatever the amount was. Every month without fail.
I auto-set reminders on my phone to pay the credit card bill since I can be a bit forgetful. The bank is also good with sending SMS and email reminders of an upcoming payment.
When I checked my credit score in September (5 months later), it was over 700.
Though most people say it takes 6 months or more for your credit score to show up, mine showed up earlier than that.
The score might have been there earlier than September. That was just when I remembered to check it.
As you can see, I didn’t need multiple credit cards either. I can barely remember to track one credit card so I have no desire to track multiple credit cards.
My CC also offers a few perks such as cash backs, free Amazon prime membership, etc. Look for a card that offers the perks you need.
To put it all in one place, below are my tips for building credit fast as a newcomer to Canada:-
Tips for Building Credit Fast in Canada
1. Open a Bank Account ASAP
Open a bank account and apply for an unsecured credit card ASAP when you arrive. You will find plenty of banks that provide an unsecured credit card.
A secured credit card will tie up some of your settlement funds. If you don’t mind this, then you can go for a secured credit card. By the way, you don’t need a job to open a bank account.
2. Put Essential Bills on You CC
The keyword here is essential. It’s not a license to go bat shit crazy shopping. Essentials include groceries, phone, bus pass, etc.
If this is money you were going to spend anyway, then it’s not that big of an issue to pay it back.
Do not try to be like the Joneses. You don’t live in their lives and you don’t know what’s going on in their lives.
3. Automate Monthly Payments
Monthly payments like Netflix, data plan and Presto card can be automated. Set them up to be paid or reloaded at certain time every month and you’re good to go.
Regular payments to the same companies appear to boost your credit scores.
4. Pay Your Credit Card Bill on Time
If your bill is $1,000 and your minimum is $10, pay the entire bill on time. Paying the minimum on-time also works but this is not just about building a good credit score.
It’s also about not drowning yourself in debt. If you pay only the minimum, it will take you forever and ever to pay off the card.
Pay off all of what’s due. It’s money you would have spent anyway so this should not be hard.
If you have no self-control when it comes to credit, I recommend reading Your Money or Your Life by Joseph R. Dominguez and Vicki Robin before you get your hands on a credit card.
A mountain of debt is a nightmare, not just for your credit score, but for you personally.
Do not let yourself go down that route. It’s very hard and painful to come back from it.
I will be sharing personal finance tips on the website as time goes on as well. I’ve used these tips for years and have been debt free for over 6 years.
5. Keep An Eye on Debt to Credit Ratio
Debt to credit ratio is how much you have outstanding vs how much credit you have available.
What this means is never have more than 70% of your credit limit outstanding on your card.
For instance, if your credit limit is $5,000, your outstanding should not exceed $3,500. A huge ratio can lead to a drop in your credit score.
Keeping these 5 points in mind will go a long way in helping you build a credit score quickly as a newcomer to Canada.
What is a Good Credit Score in Canada?
History of your payments, debt load, length of credit, new inquiries and diversity of debt all factors into your credit score.
History of payments and debt load factor in the most.
There are two credit reporting companies in Canada – Equifax and TransUnion. All your financial activities via the bank are listed in these reports.
Credit scores range from 300 – 850. The higher your score is, the more money you’re able to borrow.
A score under 600 may be considered high risk. You should still be able to borrow money but it might be at a higher interest rate.
The higher your credit score is, the better your terms and interest rates will be. An ideal credit score starts at around 720.
What Can Affect Your Credit Score?
Declaring bankruptcy, making late payments or having your outstanding payments sent over to a collections agency can greatly affect your credit score.
Additionally, the information will remain on your credit report for up to seven years.
How to Check Your Credit Score in Canada?
There are various ways to check your credit score for free. I checked mine through my client portal on my CIBC account and they stated that checking it will not affect my credit score.
The portal took me to one of the credit reporting companies where I created an account. It took two minutes and I logged out and went on with my day.
You can also call either of the credit bureaus directly and request a copy of your credit report. This service is free I believe. Contact details below:-
- Equifax Canada, 1-800-465-7166
- TransUnion Canada, 1-877-713-3393 (Quebec only), 1-800-663-9980 (All other provinces)
Remember your new life in Canada is a journey, not a marathon. Don’t try to do everything at once.
Don’t obsess over credit scores. Make a plan, stick to it and take things slowly.